Greene, who was replaced as CEO by former Windows guru Paul Maritz on July 8, built the company from scratch since its founding in 1998, but VMware faces a very different set of challenges today than it did five or 10 years ago.

VMware’s Greene-led challenge early in life was to convince enterprises that virtualizing x86 servers could be done without compromising security and reliability or introducing bigger problems than exist in data centers that use physical servers only. But after coasting through its first years without competition, VMware is being forced to justify its pricy products in the face of rival vendors such as Citrix and, of course, Microsoft.

Even with Maritz, it might be difficult to fight off Microsoft. Nine out of 10 guest operating systems that run on VMware are Windows servers, notes Burton Group analyst Richard Jones.

If an enterprise is running Windows already, why not use Microsoft’s new virtualization software, Hyper-V?

“It’s hard to say if [Greene] would have done any better of a job than Paul Maritz,” Gaggin says. “I think it’s going to be tough for them to fight off the Microsoft threat. … VMware is a single-product company trying to compete with a giant in their backyard, because the operating system environment is Microsoft’s bread and butter.”

Greene’s ouster could signal changes, such as VMware making an acquisition to bolster its virtualization technology. Or VMware’s own ownership situation could change, Gaggin says.

There had been rumors this year that EMC, which owns 86% of VMware, would sell the company. Gaggin raises another possibility. EMC, which spun off part of the company in an IPO last year, could take those shares off the market and regain 100% control. That’s just speculation, though, he notes.

Maritz comes to the CEO position from a job as EMC’s cloud computing president, a role he obtained after EMC acquired storage vendor Pi Corporation earlier this year. He left Microsoft in 2000 after 14 years managing development and marketing of products including Windows. EMC CEO Joe Tucci cited Maritz’s experience with Windows in explaining the decision to promote him to Greene’s former position.

While Greene was a “great pioneer,” Maritz is a “hardened executive” with a long history managing successful products in competitive environments, says Gartner analyst Thomas Bittman,

“If Microsoft is their number one competitor, and they are, it would be good to have somebody who understands Microsoft in that role,” he says.

Partnering with Microsoft might be the best option for VMware, which has previously taken an “us against everybody approach,” according to Bittman.“I think VMware could be a bit more cooperative with Microsoft and vice versa,” he says.

VMware still has a significant advantage over Microsoft in terms of its hypervisor. VMware gives users the ability to move an application running on a virtual server from one physical device to another instantaneously, a capability known as live migration.

Another major VMware feature is “hot add,” the ability to add memory to a virtual server while it’s running. One potential problem with Hyper-V is that it requires a parent operating system, and the hypervisor must call the parent operating system for every I/O call, according to Bittman.

“We’re concerned about the architecture of Hyper-V,” Bittman says. The parent operating system is “a single point of failure. The idea that one copy of Windows can bring down all your virtual machines is scary.”

Hyper-V has a huge advantage over VMware on price: it’s available as a free download to Windows Server 2008 users. Most other virtualization vendors, including Citrix, keep prices low by relying on the open source Xen hypervisor.

The $495 price point is a big improvement over three years ago, when the lowest price was $3,750 for every two processors, Bittman says. But he urges VMware to give the hypervisor away for free.

“I absolutely think they should give that away,” he says. “In my view, the hypervisor becomes table stakes and the differentiation is all management tools.”

VMware does offer a free, stripped-down version of its hypervisor, the VMware Server, but Bittman says it’s difficult to scale up from the VMware Server to the rest of the company’s products.

In the press release announcing that Greene was being replaced with Maritz, VMware said it expects 2008 revenues to be “modestly” lower than the previous expected growth of 50% over 2007.

Less than 50% growth in a tough economy would be cause for celebration for many companies. But investors have hammered VMware on Wall Street for not meeting lofty expectations, with stock prices dropping from $83 in January to $40 this month. The stock turmoil and CEO switch shouldn’t affect large enterprise customers, Bittman says. Small and medium-sized businesses, though, might see VMware making a better effort to woo them, he adds.

Maritz can probably be expected to lower VMware’s product prices, Jones says. “The pricing will be the biggest change as time moves forward. Competition always drives prices down,” he says.

Greene told Network World in a recent interview that VMware is focusing on shifting its value proposition from the hypervisor to the management software that improves the effectiveness of the virtualization engine. But Jones says VMware didn’t make that shift soon enough.

“When we talked to them seven months ago, they were still trying to differentiate on the performance and capabilities of the hypervisor,” he says. “We were telling them very strongly, ‘no, you need to differentiate on the management side.'”

VMware’s management tools fall short in at least one area, in that they focus on the virtual environment only. The VMware tools can be used to provision a virtual machine, but not a physical one, Jones says. VMware’s software also is blind to the performance of applications running inside a virtual machine.

“There’s a whole bunch of pieces they have missing, when you look,” Jones says. “They don’t know what applications are in [virtual machines], and how well they’re performing.”

Maritz has a tall task ahead of him, but it’s hard to predict what type of changes he will make.

“The jury’s still out on Paul,” Jones says. “I mean, he’s just been announced. I bet you his own people don’t really know much yet.”